Disinvestment in Higher Ed is Damaging OUR Future

A new report by our friends at Demos finds that “state disinvestment in public higher education over the past two decades has shifted costs to students and their families.” As readers may know,  this is something we’ve looked at before (see here and here). From 1991 to 2011, total state support for higher ed has dropped from $8,608 per full-time student to $6,360 after adjusting for inflation (2010 dollars).


In West Virginia the drop in state support for higher ed per student has not been as dramatic, falling from $7,544 to $6,254, over the 20 year period. However, these figures do not reflect that tuition at 4-year and 2-year colleges has far outpaced inflation, growing by 112 percent and 71 percent respectively from 1991 to 2011.

The growth in tuition has caused student debt to skyrocket. Nationally, student loan debt has grown from $119 billion in 1999 to $541 billion. It now makes up nearly 5 percent of household debt compared to just 1 percent a decade earlier.

 
According to the Higher Education Policy Commission, average student debt in West Virginia has grown by 48 percent or almost $10,000 over the last eight years.

The sharp rise in student debt corresponds with the growth in tuition and fees at West Virginia’s public colleges over this time period. Since 2002, in-state residents have seen their tuition/fees grow by 83 percent, from $2,816 to $5,147.
 
 
The increase in student debt and tuition and fees at public universities in West Virginia is major cause damaging our state’s future and economy. While it will require action at the national level, states can also play an important role in ensuring that more students are not saddled with excessive loan debt. Demos offers the following recommendations for states:
  • State leaders should renew their commitment to public higher education.
  • States should view support for higher education in the light of the adequacy of their overall revenue systems.
  • States need to focus on the entire population of post-secondary students and its characteristics. 
  • States must recognize the consequences of constant tuition increases.
  • States should align investments in higher education with the goal of completion.
  • States should reorient their financial aid policies back toward need-based aid.
  • And finally, states should think more systematically about how they incorporate borrowing into financial aid programs.

Why Not Drug Test State-Funded Job Training?

Today the Governor officially ordered Workforce WV to begin drug testing those enrolled in job training programs (see below press release). What was not mentioned was that these programs are completely funded by federal dollars and that they mostly go to the “disadvantaged and at-risk youth, adults, and dislocated workers.”

However, the big question is why didn’t the Governor include the state’s only taxpayer funded workforce program – the Governor’s Guaranteed Work Force Program – in his executive order on drug testing? While we are big fans of this program – and not to mention that we think it needs significantly more investment – it is mostly a subsidy to large businesses. Oh, that might explain it.

More to come…

 

For Immediate Release
April 24, 2012
Contact: Amy Shuler Goodwin
304-558-4977
GOVERNOR TOMBLIN HOLDS ROUNDTABLE DISCUSSION WITH WHEELING AREA BUSINESS LEADERS
Gov. Tomblin signs Executive Order No. 8-12 requiring Workforce WV clients to pass drug test prior to training enrollment
 
CHARLESTON, W.Va. -Gov. Earl Ray Tomblin today met with Wheeling area business leaders and members of the Regional Economic Development Partnership, known as RED, to discuss local business challenges including problems related to substance abuse.  During the roundtable discussion, Gov. Tomblin signed Executive Order No. 8-12 which orders Workforce West Virginia, a division of the state Department of Commerce, to implement a drug screening policy for participants of its employment training services.

“For our businesses to prosper, we need to understand the challenges they face. That is why I called for this roundtable discussion,” Gov. Tomblin said. “One of the biggest challenges relates to substance abuse by employees. I continuously hear from business leaders located all across the state, that they have jobs available but the candidates cannot pass a pre-employment drug screening. When this happens we have wasted taxpayer dollars, hurt our businesses, and limit our economic growth. My executive order will save taxpayer dollars by insuring graduates of Workforce West Virginia training are drug-free and ready to work.”

Executive Order No. 8-12 requires all participants seeking to enroll in training-level services funded by Workforce West Virginia to pass a ten-panel drug test. Participants who test positive shall not receive training services for 90 days. If a participant fails a second test, training services shall not be available for one calendar year.

“A drug-free workforce is critical to our state’s economic success. By screening applicants before they enter training, we are investing our training dollars in improving the productivity and success of our workforce,” said Russell L. Fry, Acting Executive Director of WorkForce West Virginia.

Workforce West Virginia is in the process of implementing Gov. Tomblin’s order and will establish an effective date in the near future. Executive Order No. 8-12 is available here.

 # # #
 


Job Killing Medicaid Cuts in the Ryan Budget

West Virginia could lose tens of thousands of jobs over the next five years if Congress enacts the major cuts to Medicaid as proposed by Rep. Paul Ryan and passed by the House of Representatives last month.

According to a report from the Economic Policy Institute, the $544 billion in Medicaid cuts in the Ryan Budget over the next five years are a real job killer, both nationally and in West Virginia. The EPI estimates that these cuts would cost the economy roughly 862,000 jobs in 2014 and that annual job loss would rise to nearly 1.5 million in 2017, costing the economy nearly 5 million jobs in total.
 
Source: Economic Policy Institute
 
Because of Medicaid’s low overhead, the cuts will slow spending on goods and services, such as food, nursing home care and health services, making the these job losses overwhelmingly from the private sector. An estimated 823,000 private-sector jobs would be lost in 2014, and 4.8 million total by 2017.
 
The cuts to Medicaid would be a job killer in West Virginia as well. According to estimates, the cuts to Medicaid would result in between 28,000 and 42,000 job losses for West Virginia over the next five years.
 
These job loss estimates are conservative, as EPI explains, “Medicaid is a program generally benefiting low-income households—which, out of necessity, are much more likely to consume rather than save an additional dollar of disposable income—the cuts to Medicaid would likely have an even larger impact on the economy than we estimate here. For example, Reich et al. (2011) suggests a job impact three times greater than what our model assumes. Additionally, it is likely that an even larger share of the job loss would fall on the private sector because overhead includes not only labor but equipment and supplies, which are provided by private companies.”

As we’ve pointed out before, Medicaid is an important program for our state. Approximately twenty-two percent of all West Virginians rely on Medicaid for health care. Cutting Medicaid benefits would hurt many of the state’s poor, elderly and disabled. Medicaid is so important to West Virginia, its people, its economy and its future and reductions at the federal level would do unnecessary harm to some of our most vulnerable residents.

Low-Wage Workers More Educated Today

Here is an interesting, if troubling blog post from the Center for Economic and Policy Research. The post shows that low-wage workers (those making less than $10.00 an hour in 2011 dollars) are becoming more educated. 

In every state across the country, low wage workers are more educated than they were thirty years ago, meaning that an education is less of a guarantee of a good paying job than it was in the past.
 
In 1979-1981 only 2.9% of college educated workers in WV were low wage. For 2009-2011 that percentage had jumped to 8.1%.
 
low-wage-states-table 
 
low-wage-states-fig1
 
low-wage-states-fig2

Stamping Plant to Reopen – What Does It All Mean?

The big news yesterday was that the South Charleston stamping plant has been leased by Gestamp, a Spanish automotive stamping company. According to reports, Gestamp could eventually employ 700 workers.

Gestamp chose South Charleston for several reasons, but mainly it was because the plant already contained necessary stamping equipment which allows it to be occupied immediately. The upkeep of the plant was made possible in part by a $15 million loan from the state of West Virginia in 2007. A tax break offsetting the B&O tax was also part of the incentive, as well as the state offering to buy the company’s equipment and lease it back to them, to avoid personal property taxes.

While handing out incentives and subsidies to companies in order to create jobs doesn’t always work out, it’s is worth taking a look at what is in store for West Virginia with the reopening of the stamping plant. For this we’ll take a look at some Census and Bureau of Labor Statistics data.

Motor vehicle metal stamping falls under NAICS code 31336370. According to the BLS, there were 58,600 people employed in the industry in 2011. But, like most manufacturing jobs, this number is down significantly in recent years. New employment from the reopening of the plant could signal a reverse in this trend.

 

 Source: Bureau of Labor Statistics
 
The jobs in this industry are typically good-paying jobs. According to the BLS, the average hourly earnings for the industry were $23.15, or roughly $48,000 per year for a full time employee.
 
According to the 2007 economic Census, there were 815 motor vehicle metal stamping establishments in the U.S. in 2007. With the employment figures from the BLS for 2007, that would mean each establishment had about 110 employees. The total value of their shipments (or sales) totaled $29.1 billion in 2007, for an average of $35 million per establishment.
 
The job and sales requirements of the B&O incentive call for $100 million in sales by the 4th year of production and 250 employees, making the South Charleston facility much larger than the average establishment. Reports estimate that there will be 175-200 jobs initially, and as many as 700 when the facility is fully operational.
 
Manufacturing jobs like these have high economic multipliers, meaning they support jobs elsewhere in the economy. According to some estimates, the jobs multiplier for manufacturing jobs is 2.91, meaning each manufacturing job indirectly supports 2.91 jobs. This means if the stamping plant does eventually employ 700 workers, up to 2,037 indirect jobs will be supported.
 
As for the tax incentive, it involves a credit against the local B&O tax, which the plant must meet certain sales and employment requirements to receive. The credit is for 50% or 25% of the B&O tax liability, depending on the number of years of operation. The amount of the tax that can be owed is also capped, at $365,000 per year for the life of the credit.
 
The table below breaks down the tax incentive. The credit would go into effect in the facility’s fifth year of production, if it has sales of $100 million and meets the employment requirements. It is impossible to know what the sales will be four years or 12 years down the road, so we are assuming that they are the minimum requirements set forth in the tax credit.
 

Year

Sales Requirement

B&O Tax

Credit

Tax with Credit

Actual Tax Owed

5

$100,000,000

$300,000

50%

$150,000

$150,000

6

$100,000,000

$300,000

50%

$150,000

$150,000

7

$100,000,000

$300,000

50%

$150,000

$150,000

8

$200,000,000

$600,000

50%

$300,000

$300,000

9

$250,000,000

$750,000

50%

$375,000

$360,000

10

$250,000,000

$750,000

25%

$562,500

$360,000

11

$250,000,000

$750,000

25%

$562,500

$360,000

12

$400,000,000

$1,200,000

25%

$900,000

$360,000

13

$400,000,000

$1,200,000

25%

$900,000

$360,000

14

$400,000,000

$1,200,000

25%

$900,000

$360,000

15

$400,000,000

$1,200,000

25%

$900,000

$360,000

16

$400,000,000

$1,200,000

25%

$900,000

$360,000

17

$400,000,000

$1,200,000

25%

$900,000

$360,000

18

$400,000,000

$1,200,000

25%

$900,000

$360,000

19

$400,000,000

$1,200,000

25%

$900,000

$360,000

20

$400,000,000

$1,200,000

25%

$900,000

$360,000

Total

$4,850,000,000

$14,550,000

 

$10,350,000

$5,070,000

Source: WVCBP analysis of South Charleston City Council Minutes, April 5, 2012

As the table shows, while the amount of the credit drops from 50% to 25% in year 10, the amount of tax owed does not increase. This is because the tax is capped at $360,000. The cap on the tax is actually more valuable than the credit over the life of the credit. Over the time frame, the credit would reduce the amount of B&O taxes owed from $14.6 million to $10.4 million, a savings of $4.2 million. However, with the cap in place, the facility would only owe $5.1 million, an additional savings of $5.3 million. This is because, beginning in year 9, the amount of tax owed is greater than the $360,000 cap. So while the credit falls from 50% to 25%, the size of the tax break actually increases, due to the cap.
 
Overall, over the span of the effective credit, the facility could save $9.5 million, a 65% reduction, due to the incentive. The incentive lowers the overall effective rate of the B&O tax from 0.3% to 0.1% of total sales.
 
So while the B&O tax break could reduce the facility’s B&O taxes by about 65%, we don’t know what the tax savings are with regard to the state owning the facility’s equipment, or the value of any other existing incentives.
 
For an incredibly rough estimate of the value of the facilities personal property we can do some back of the envelope calculations using the 2007 economic Census. According to the Census, in 2007 the value of depreciable assets for the motor vehicle metal stamping industry was $19.9 billion dollars, or about 68% of the value of the industry’s shipments.
 
If we take that percentage and apply it the the $100 million minimum sales figure, we can estimate that the personal property of the facility would have a value of about $68 million, which would be assessed at $40.8 million for property taxes (60% assessment). Class IV property in South Charleston has a tax rate of $3.03 per $100 of assessed value, which would give a property tax bill of $2,060,400. By buying and then leasing the personal property, the state would save the facility an estimated $2,060,400 in property taxes. (If anyone out there has any actual figures instead of these estimates, please feel free to correct me).

(Since the building is being leased, the real estate tax will be paid by the Park Corporation.
According to the Kanawha County Assessors Office, the total appraised value of the stamping plant is $19.5 million with an estimated tax bill of $354,000.)

To be clear,  this analysis is not suggesting that this isn’t a “good deal” for the state. We think it is great that there is a possibility of creating new good paying jobs. Like we’ve said a million times, we are all for a strong economy and for government to play a smart role in economic development.  Our only aim with this post is to shed some light on what the fiscal impact might be on the deal.  Since these job subsides are taxpayer funded, the public has a right to know the costs and benefits. While history shows that deals like these often go sour,  we hope it not only works out but that it revitalizes auto parts manufacturing in the region.

Hopefully more to come soon.

West Virginia Taxes Poor Families Further into Poverty

Over the last 20 years, West Virginia has made substantial progress in reducing the state income taxes paid by families living in poverty. In 1990, the state income tax threshold (the point at which residents begin to pay state income taxes) on families of four living at the federal poverty line was $8,000 compared to $22,400 in 2011. In 1994, a family of four living at the poverty line paid about $250 in state income taxes compared to $151 today.

In spite of this progress, West Virginia still taxes working-poor families deeper into poverty than most states. According to the new report by Center on Budget and Policy Priorities, West Virginia is one of 15 states that impose state income taxes on two-parent families of four at or below the poverty line.

As readers of this blog know, we’ve been advocating a solution to this problem for about four years. It is called a state Earned Income Tax Credit (SEITC). In conjunction with the federal EITC, a West Virginia SEITC would serve as an effective anti-poverty tool. By giving many low- and moderate-income working families a refundable credit, a SEITC would promote greater economic security and would help these families make ends meet.

Currently, 24 states have enacted SEITCs. West Virginia should follow their lead. By reducing state income taxes for the working-poor in West Virginia it will both encourage works and reduce poverty, while setting families – and our state economy – on the path towards a better tomorrow.

Lack of Housing Bubble Made WV Recession Less Severe

Our friends at the CBPP have released a new report today debunking the “Texas economic miracle” of the Great Recession. The report lists several factors for why Texas has weathered the recession better than most states. Two of these factors, including a lack of a housing bubble and above average employment in natural resource extraction, can also help explain why West Virginia has fared better than most states.

As we’ve pointed out before, the most damaging economic aspect of the housing bubble in West Virginia was not the sharp fall in housing prices or foreclosures in the Mountain State. It was the steep drop in aggregate demand from the bursting of the $8 trillion national housing bubble that caused West Virginia manufacturing employment to plummet. As the chart below shows, housing prices (nominal dollars) in West Virginia have declined by less than two percent from their peak in 2007. Nationally, they’ve declined by almost 20 percent.

 West Virginia, like Texas, also has an above average concentration of jobs in the mining sector – which includes, oil, natural gas, and coal extraction. In fact, West Virginia has almost eight times as many workers in natural resource extraction as the U.S. average (as a share of total jobs).

 
With the boom in Marcellus drilling and the rise in coal prices during the recession and the lack of a housing bubbleWest Virginia, like Texas,  was uniquely situated to cushion the biggest problems of the recession. Unless other states can discover how to drill oil and gas or mine coal, it doesn’t appear that would have avoided the worst of the recession.